From Inside Man to ‘Outsider’: How One Restructuring Attorney Aims to Nab New York’s Top Cop Post

29 October 2018

By Maria Chutchian

Keith Wofford is not a fan of “wise guys.” They pop up frequently in recollections of his career as a corporate bankruptcy lawyer, often in the form of a debt-ridden company’s management. Now, as the Republican candidate for New York Attorney General attempts to win over voters, he’s promising to rid Albany of the “wise guy behavior” he believes is ruining the state’s economy and public services.

Wofford’s comments came during a recent interview with Debtwire Investigations that covered his campaign, his personal and professional background, and his infinite frustration with the tense relationship between the attorney general’s office and the financial markets.

With more than two decades in the financial restructuring community under his belt, Wofford has made a name for himself as a guy lenders and bondholders call when a company stops paying its debts. During his time at Ropes & Gray, most recently as co-managing partner of the law firm’s New York office, he has represented some of the most recognizable institutions in the distressed debt universe.

Case in point, when Edison Mission Energy (EME) faced pressure to restructure its debt in 2012, Wofford was brought in to advise holders of billions of dollars in the power company’s bonds – including Barclays Capital, Jefferies, Whitebox Advisors and York Capital Management, among others – to negotiate a settlement of the debt obligations as well as legal disputes with EME’s then-parent entity. Now, Wofford aims to pivot away from his time representing some of the titans of Wall Street and execute a switch to policing them instead.

Wofford’s achievements in his legal career make his decision to run for attorney general – a highly visible and influential position not just for New York residents but for the financial industry as a whole – somewhat unexpected. With its “sheriff of Wall Street” reputation, the office has become known for taking on – and in some cases, procuring hefty fees or settlements from – some of the top banks and investment firms it suspects of shady investing practices or ripping off consumers.

Moreover, in an era where politics at the federal level looms large over nearly every race, the New York attorney general’s role in handling the Trump administration could prove critical. For his part, Wofford tends to talk around his Republican Party affiliation and support of Donald Trump in the 2016 presidential election, choosing instead to steer the conversation to his view of himself as an independent voice unblemished by state politics.

Wofford’s pitch is in sharp contrast to the position taken by opponent Public Advocate Letitia James, a Democrat who has been outspoken about her intentions to take on Trump in the areas of legislation related to pardon power and violations of the constitution’s Emoluments Clause, according to media reports.

The core of Wofford’s pitch to voters is his plan to focus on state government corruption, and his pledge to scale back the AG office’s legal attacks against Wall Street. The Buffalo native is banking that his position on the outskirts of the state’s political machinery will be viewed as an appealing alternative on 6 November. To be sure, walking a fine line between GOP candidate and “outsider” is likely strategic in a state where the last Republican attorney general left office in 1998.

“We’ve seen every bit of baloney known to man, you know, every trick in the book,” Wofford said of his work as a lawyer for creditors of bankrupt companies.

Wofford’s “outsider” campaign has the financial backing of some heavyweights of the bankruptcy and restructuring world, including Elliott Management founder Paul Singer and veteran Kirkland & Ellis partner, James Sprayregen. Home Depot founder Kenneth Langone is also a notable contributor.

A recent poll conducted by the Siena College Research Institute placed James at a lead of 50-36 percent. But Wofford isn’t fazed. Rattling off the legal and personal disasters that took down Eliot Spitzer and Eric Schneiderman – and taking a swipe at former aides to Governor Andrew Cuomo who have been indicted on wide scale corruption, bribery, and bid-rigging charges this year – Wofford laughed off the idea that New Yorkers are inclined to stick with the same party that produced all three of those men.

“Why, given that track record, is it not an asset to have a little bit of a different program and background?” he said.

High-profile Democrats are, of course, usually responsible for New York’s political drama, but Republicans – who control the state Senate – don’t get off scot-free. Just this summer, Senate Majority Leader Dean Skelos was convicted (on retrial, three years after his initial conviction) on corruption charges.

Courtesy of the Keith Wofford campaign.

Growing up on what he calls the “wrong side” of Buffalo, Wofford recounts being the son of working-class parents who never had much money, but offered encouragement to pursue higher education. Their hard work paid off, he said – Wofford attended Harvard College on scholarship, earned his law degree from Harvard Law School, then returned to New York to pursue his legal career.

The candidate says his motives in this election are pure – he wants to give back to working class communities that, in his view, don’t have the same opportunities as he did growing up, a situation he blames on the state’s government. New York’s public schools and libraries are degenerating, he says, as a result of a corrupt political system that not only scares off business and investment that would otherwise provide a great deal of tax revenue to the state, but inflates contracts for companies designing and building schools.

“We just don't have a trust factor with this government,” he said.

A man of the creditors

Wofford and his team at Ropes have represented an array of lenders and bondholders – often firms like Elliott and Knighthead Capital – looking to recover funds they lent to companies that later filed for Chapter 11. Wofford’s own track record stands out for delving into many of the more complex power and energy restructurings – the likes of which even some seasoned distressed players might shy away from.

Mark Somerstein, a Ropes partner who has worked alongside Wofford for years, called his colleague a “voracious reader” and the kind of attorney who will be “the smartest guy in the room in every meeting” in an interview with Debtwire.

In the landmark Calpine restructuring, Wofford represented creditors to the power company as they reached a settlement over disputes stemming from a sale-leaseback transaction. In that situation, he said, the near-insolvent electric company’s management sold USD 1bn in assets that were supposed to serve as collateral for the creditors’ debt holdings.

The existing management first attempted to ignore the creditors whose collateral it had just sold off, and then switched tactics and defended its right to move the assets, Wofford said. The litigation eventually reached the Delaware Supreme Court, where Wofford’s clients prevailed, and Calpine was forced to file for Chapter 11 protection.

Many of his clients in recent years have been creditors of large energy companies that were forced to restructure or sell off their assets. Wofford has represented creditors of Energy Future Holdings, FirstEnergy Solutions, GenOn Energy, Linn Energy and Berry Petroleum Company, Edison Mission Energy, Endeavour International, and more.

His work at Ropes extends beyond energy company restructurings, however. In the historic Lehman Brothers bankruptcy, Wofford advised R3 Capital Partners when Lehman sold off its 45% stake in the firm. More recently, he was also part of the team that represented Knighthead, as a bondholder, in Puerto Rico’s debt restructuring proceedings.

In his eyes, representing people and entities trying to recoup money they lent out, or pulling admissions of wrongdoing out of top-level executives, is effectively the corporate equivalent of representing citizens in the state of New York.

Complicated litigation involving sly financial maneuvering is “the kind of expertise taxpayers need because there's a very sophisticated group of people working with these crooked politicians to rob the taxpayers blind,” Wofford said. “The taxpayers need someone on their side who can actually see what's going on for what it is.”

Wofford says his civil litigation skills will be a key asset in tackling his third major campaign issue: the ongoing national opioid crisis. While he advocates for a crackdown on street-level dealing through a consolidation of local law enforcements and the prevention of legal opioid over-prescription with the assistance of a more active Medicare Fraud Strike Force, he also intends to pursue civil enforcement efforts to curb the flood of opioids from drug manufacturers.

Proceeds of those civil settlements would be used to provide more treatment options for addicts, as well as resources for first responders, Wofford said. A recent article in The Daily News suggested a conflict of interest due to Ropes’ work for Purdue Pharma, the maker of OxyContin, but Wofford’s camp has said that he had nothing to do with the firm’s representation of Purdue.

The platform: Corruption and attorney general overreach

New York has been home to a fair number of high-profile political scandals at the state level over the past decade. Just this year, former Speaker of the Assembly Sheldon Silver, Cuomo aides and advisors Joseph Percoco and Alain Kaloyeros, and Assemblywoman Pamela Harris have been convicted on various corruption, bribery, fraud, and conspiracy charges.

But Wofford says the problems don’t end with the individual political figures. He assures voters that his more welcoming approach to investors and businesses will be an economic boon.

A key component of that approach would involve a gentler use of the state’s Martin Act. The statute, which gives the government power to pursue securities and corporate fraud, does not require prosecutors to prove an intent to defraud or damages. State and local law expert Richard Briffault, the Joseph P. Chamberlain Professor of Legislation at Columbia Law School, said the law has a reputation as an “unusual statute,” but noted that it was enacted before federal involvement in this area of fraud was commonplace.

The statute, passed in 1921, predates the formation of the US Securities and Exchange Commission and federal securities laws but the securities provisions of the act weren’t popularized until Spitzer began using them to tackle some of Wall Street’s biggest firms, including Merrill Lynch, in the early 2000s. He later rendered a USD 1.4bn settlement with ten investment firms resolving conflict of interest allegations.

Spitzer’s successors followed in a similar fashion. Cuomo touted tens of billions of dollars in recoveries under a settlement with auction-rate securities underwriters accused of misleading marketing and sales tactics. Schneiderman raked in penalties from banks that sold risky mortgage-backed securities ahead of the 2008 financial crisis and targeted institutions accused of using “dark pools,” or private trading forums, to take advantage of investors.

Wofford argues that the Martin Act’s broad powers should be wielded with discretion, and accuses the recent string of Democrats running the attorney general’s office of strong-arming banks and other financial institutions into sweeping settlements in which there has been no proof of damages caused to purported victims. “That to me is inherently abusive because you’re not collecting money to…reimburse the people who were supposedly defrauded,” he said.

More aggressive use of the Martin Act against financial institutions and firms threatens New York’s role as the financial capital of the world, he says.

“You have to be mindful if you're going to try to be the sheriff of not chasing everybody out of town before sundown because we are in danger of losing the industry,” Wofford said. “That is our biggest taxpayer and frankly is an industry for which we are the epicenter worldwide…and you wouldn't have an attorney general and governor in Texas who make their way or make their reputations by chasing out the energy industry.” He highlighted as a recent example the announcement from asset manager AllianceBernstein in May that it is moving its headquarters and more than 1,000 jobs from New York to Nashville, Tennessee.

However, Briffault says the cause and effect of New York’s increased use of the Martin Act isn’t quite that clear cut. A departure of the financial services industry out of the state would be influenced by several other factors, including the United States’ economic environment and the London financial markets, he said. “And New York has remained the center of the financial industry despite the use of the Martin Act,” Briffault added.

And James campaign spokesman Jack Sterne dismissed Wofford’s approach to Wall Street and the Martin Act, in a statement to Debtwire.

“Mr. Wofford's proposal to let his Wall Street clients continue the abuses and criminal conduct that led to the subprime mortgage crisis – which cost tens of thousands of New York families their homes – is not a surprise given his vote for, and embrace of, Donald Trump,” Sterne said. “It is offensive to suggest that the Attorney General should not utilize the power of the Martin Act and walk away from protecting the families of this state. Tish James will never put the interest of Wall Street corporate giants over the well-being of working New Yorkers."

The law was scaled back slightly in June, when the New York State Court of Appeals held that the Martin Act’s statute of limitations is three years, rather than six, as the attorney general’s office argued. The ruling came in a case Schneiderman brought against Credit Suisse in 2012, accusing the bank of misleading investors about the quality of loans underlying its residential mortgage-backed securities and causing USD 11.2bn in losses.

Though he is running as a Republican, Wofford likes to present himself as an independent voice that would investigate potential wrong-doers regardless of party affiliation. He accuses James of conveniently omitting the public blunders of Democrats – Mayor Bill de Blasio’s New York City Housing Authority debacle, for example – in her campaign.

“The bottom line is, she’s the people’s lawyer as long as it ain’t any of her people in the crosshairs,” he said. “But we’re not going to do it that way.”

One of the people who is in her crosshairs is President Trump. Following a New York Times expose on Trump’s history of tax evasion, James called on state and federal agencies, including the current New York attorney general and the Internal Revenue Service – to investigate any alleged wrongdoing brought to the attention of the attorney general’s office. In response, Wofford told Debtwire that “given the magnitude of the numbers,” he would “absolutely” look into any “indications of impropriety.”

“No attorney general, no state government, in their right mind should not look into allegations of potential substantial tax reporting violations,” he said. “When I’m attorney general, we [will] look at this corruption stuff and potential violations on both sides of the street.”

James comes to the race with a starkly different legal background than Wofford, and has made a point of highlighting her history in public service. Before her turn as New York Public Advocate, James sat on the New York City Council, headed the Brooklyn Regional Office of the state attorney general, and served as a public defender for the Legal Aid Society.

Reminiscent of the controversy over the release of President Trump’s tax returns, in recent statements James has challenged Wofford to release his tax returns for the past five years, as she has done. In response, Wofford has challenged her to five debates. “Getting the candidates – in particular my opponent – out from behind the curtain of the political handlers so we can talk about some real issues is important,” he said. Spectrum News announced recently that it will host a debate between the candidates on 30 October.

Wofford told Debtwire that he would eventually release some of his tax information, so voters are “comfortable that my financial life is as boring as it actually is.” He made USD 4.3m last year, according to the Times.

The donors

In addition to her lead in the polls, James has enjoyed greater success at fundraising than Wofford. The Democrat has reported USD 2.3m in donations, while Wofford has reported USD 1.5m, according to reports filed with the New York State Board of Elections. Some of his top donors outside of state Republican groups are his fellow Ropes partners – a few of whom each donated the maximum USD 44,000 allowed for an individual under New York law.

Wofford has also received donations from lawyers and restructuring professionals at other firms. Sprayregen is just one of the big names in the corporate bankruptcy world who donated to Wofford’s campaign.

“Keith is a gentleman,” Sprayregen said. “He’s very smart, hard-working, represents his clients to the nth degree, and is able to disagree without being disagreeable.”

Perhaps the biggest name on Wofford’s campaign donor list is Singer, the billionaire founder of Elliott. Wofford says that while he has met Singer, he wouldn’t call their relationship “personal,” and that his work with Elliott has largely been with US restructuring chief Dave Miller and portfolio manager Jeff Rosenbaum. A representative for Elliott said neither were available to comment.

Wofford says he never intended to run for public office until now. He and his campaign manager, Republican strategist E. O’Brien Murray, were introduced through “mutual friends,” Wofford said with a grin.

Colleagues who spoke with Debtwire said they never before heard him express an interest in the attorney general position, and New York State Republican Party Chairman Edward Cox said Wofford emerged “just before the convention.” He first became known to the state’s Republican Party during Trump’s inaugural gala, Cox said. “He learned the political ropes very well,” Cox added.

He may be an unfamiliar face in the political world, but as the first black Republican candidate for the state’s attorney general position, Wofford’s campaign is already historic. (James, meanwhile, broke the glass ceiling by becoming the first black woman to be nominated by any major party for a statewide office in New York.)

Making the leap from the private sector to an enormously powerful political post is, of course, not unheard of these days. Perhaps that’s one of the reasons why, despite being relatively new to the game, Wofford doesn’t view himself as the underdog in this election.

“I would suggest that from what I've heard from voters around the state,” he said, “they're ready to do something a little different.”